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Forms of Financial Incentive - Case Study Example

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From the paper "Forms of Financial Incentive" it is clear that human resource strategy has become the most critical factor that develops the highly indigenous team of human capital that helps to provide the organization with a competitive advantage that is unique…
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Forms of Financial Incentive
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How might performance-related pay (PRP) improve performance? Are there other forms of financial incentive that could be better suited to the task? Introduction In the highly competitive environment of globalization and advancing technology, the changing dynamics of global businesses have become more challenging. Indeed, development and creation of high performance working has become the most critical aspect of an organization. An integrated approach facilitates collective vision of the organization and provides the necessary impetus to the employees to strive towards it. At the same time, the personal goals and career development of the employees have also become major work paradigms that must be addressed by the managerial leadership. Thus, need to identify measures that significantly impact the performance of the workforce has become intrinsic to the success of the firms. The paper would focus on the issues vis-à-vis financial incentives that considerably impact the employees’ performance. HR strategy and organizational goals and objectives Human resource is central to the organizational visions and goals and HR leadership initiatives become crucial factor for creating and organizing an effective workforce that is able to make valuable contribution to the increased output and improved performance outcome of the organizational. Hence, HR strategy needs to be redefined as globalization has ushered in a huge database of human capital whose potential needs to be exploited to realize one’s own vision and mission (Taylor, 2008). The challenges of multicultural fabric of society are myriad. Now, the workforce must be looked upon as resource that can be tapped to improve and improvise the performance of the organization in the fiercely competitive business setting. HR leaders need to be aware that the traditional process of labour deployment is undergoing a fast transformation, both in terms of quality and quantity. Scholars assert that information technology and new media of communication channels in the past decade and a half have ushered in radical new forms of processes (Freeman and Perez 1988, Best 1990). The rapidly changing models of work environment has made it imperative for the employees and the job aspirants alike, to keep themselves updated with the knowledge and use of all the latest gadgets and processes which are increasingly replacing the older model of office efficiencies. The innovative measures that link pay to the performance and other such incentive driven tools have increasingly being adopted by the organizational leadership. Rationale for performance related pay Bloisi (2007) emphasizes that performance management primarily defines the process through which the managers ensure that employees’ output is at par with that of organizational targeted goals and objectives. The encouraging and incentive driven work environment promotes retention of employees and gives the organization better leverage to compete with their rivals. The experienced and motivated workforce is conducive to higher degree of creative inputs and innovative approach which may give a unique positioning to the organizational products and services. Armstrong and Baron (2005) assert that the performance management is a process that relies on effective management of individuals and team for optimal levels of organizational performance outcome. Hence, the shared goals and collective decision making significantly impacts the performance. The merit based remuneration and pay equity greatly inculcates confidence and mutual trust building. Thus, financial compensation is vital element of improving and improvising performance outcome of the individuals. Factors and issues linked with financial remuneration Sjostrand and Tyrstrup, in one of their article, have argued that managerial leadership needs to be approached as a relational, ongoing social construction process rather than as a single clear cut phenomenon (2001). Indeed, for any organization to expand and succeed, it is crucial that its people are recognized as vital part of its strategy and organizational goals and objectives be interpreted in the context of the changing paradigms of the times. The various factors that have considerable impact on improved performance are facilitating ingredients for leadership initiatives of HRM. Job satisfaction Job satisfaction is multi-dimensional and highly complex concept that cannot be applied uniformly to all human-beings (Larke, George, & Pokrywczynski, 1998; Sweeney, et al., 2002). The criteria for job satisfaction may vary but it variably encourages retention, quality and consistency in work paradigms. Indeed, Blood et al., (2002) assert that it is directly correlated to improved work performance, high values, better health, reduced absenteeism and motivation. Hence, HR leadership continuously makes effort to create congenial work environment that promote job satisfaction. Effective appraisal system An effective and regular performance appraisal that is linked to the compensation is important tool to evaluate and assess the employees’ worth to the organization. A uniform appraisal system ensures that employees across the world are able to access equal opportunity for personal and professional growth. Disparity in the performance appraisal systems that is considerably influenced by the individual and regional interests not only adversely impacts the performance outcome of the organization but they also demoralize employees and promote distrust. The appraisal system is an important aspect of rewarding outstanding employees and serves as important feedback for others to improve their performance (Armstrong & mUrlis, 2007). ACAS (2006) asserts that ‘any organisation that chooses appraisal related pay should have good industrial relations and good communications systems in place. It is also important that the finance necessary to operate the scheme is available. Appraisal related pay is most successfully introduced when it is linked to an existing appraisal scheme that is working well, rather than a simultaneous introduction of appraisal and appraisal-related pay. Hence, effective communication of the various schemes and linkages that promote appraisal linked pay invariably becomes intrinsic part of management strategy. Financial and emotional security Social scientists have recognized the importance of psychological well-being of the employees (Cropanzano & Wright, 2001). For continued improved performance, it is important that workforce is financially and emotionally secure in the job. The timely and fair promotional avenues accompanied with adequate financial incentives are highly relevant to create a cohesive and committed workforce. Emotions and feelings are intrinsic part of human behaviour and emotional stability of the person in an organization is extremely important for rationalized decision making processes within the work environment. Quick et al.(1977) have stressed ‘it is possible that psychological well-being and employee performance are related’. Indeed, socio-psychological well being reflects positively or negatively in one’s work performance. Other types of financial incentives that impact performance Various scholars assert that good management discusses with its employees about the things that are most important to them. Increment in pay, benefits in kind, free time and paid vacations, special privileges etc. so that they are able to identify their hopes and expectations from the job and develop appropriate model of performance related reward options (Cascio, 2005). While increased pay scale is the fundamental issue with the workers, other types of fringe benefits related to performance is huge attractive for continued high performance. McGregor has been emphatic that proactive participation of the workforce in the decision making is imperative for sustainable growth of any organization. He said, ‘The effectiveness of organizations could be at least doubled if managers could discover how to tap into the unrealized potential present in their workforces’ (McGregor, 1960). Thus shared learning needs to become intrinsic part of HR Strategy that involves the employees in decision making processes and promotes collective goals and improved productivity. Profit sharing Many scholars believe that sharing profits with the employees considerably increases the organizational performance through more commitment towards work and accelerates mutual cooperation amongst the employees (Bratton & Gold, 2007; Foot & Hook, 2008). Indeed quantifying workers’ performance vis-à-vis financial rewards encourage flexibility and quality in the work that reflects in the improved organizational performance. Providing the employee with bonus shares of the firm also ensures that the workforce becomes a part of firm’s profits. It is also one of the most attractive motivations for their improved performance. Becoming a shareholder of the company develops more personal relationship with the firm and encourages committed goal linked performance. Providing insurance options and children’s education These are important benefits of the job that promotes retention and dedicated work performance. The education and healthcare are increasingly becoming expensive and the organization’s programs and welfare schemes become the motivating factor for the employees to achieve organization’s goals with more enthusiasm, vigour and creativity. While the young may go for comprehensive health insurance, the older employees prefer pension plans. The various schemes that benefit the employees and provide them with wide scope of options become important ingredients of motivation for improved performance (Fisher, 2005). Indeed, it is important the leaders and managers need to develop and enhance cross cultural relationship that must go beyond the officialdom in order to win the trust of the people. They must also become the link which would promote confidence building and strengthen interpersonal understanding with the group. Providing opportunities to employees for their career development through training and development The management needs to accept the challenge of creating a cohesive and encouraging atmosphere so that the workers could get effective learning environment. They need to be provided with a wider scope for professional growth in the area of core competencies. They are also responsible for advocating and nurturing a high standard of ethics and quality work while fostering a good relationship amongst them which includes the administrators, management and entire customer base. Hence, strategies and policies must incorporate the changing nature of the society that is increasingly becoming multicultural and focus more on training and development of human resource to meet the challenges of the global competition. The HR department, through judicious approach of employing people and upgrading their skills to suit the changing business environment, becomes critical to creating congenial work atmosphere that motivates and inspires others to improve their performance and achieve organization’s goals with vision and innovation. Encouraging employees’ rights and collective bargaining The socio-political paradigms and the federal legislation with regard to employment and employees’ rights have become extremely important. The organizations need to conform with the state laws of employment and corporate governance gives them an opportunity to promote transparency in their work culture and look after the welfare of their workforce through affirmative actions. The currents times have made it imperative for managerial leadership to promote diversity in their workforce and incorporate dynamic HR strategy that would be able to adapt to the changing equations of the business compulsions and help give the organization a competitive advantage. The concept of ‘unions’ in the 1980s has given a great impetus to the employees to fight for their rights. The capability of unions to generate collective bargaining system through large scale membership within their unions has been a good measure against the monopoly of the big corporate houses. It gives a fair chance to the erred employee and the new HR strategy encourages the union to promote membership so that management can also resolve contentious issues with them. Conclusion The human resource strategy has become the most critical factor that develops the highly indigenous team of human capital that helps to provide the organization with a competitive advantage that is unique. While various other financial incentives serve as huge motivation, the performance linked pay has become a key factor for continued improved performance of the workers. One can therefore conclude that effective HR strategy that introduces creative measures for performance linked incentives is an important source of competitive advantage. Reference Armstrong, A. & Baron, A. (2005). Managing Performance. London, CIPD. Armstrong, M. & Murlis, H. (2007). Reward Management. 5th Edition, London. Acas (2007). Appraisal-related Pay. Advisory Booklet, London. Available from: [Accessed 30 July, 2010]. Best, M. (1990). The New Competition: Institutions of Industrial Restructuring. Cambridge. MA: Harvard University Press. Blood, G. W., Ridenour, J. S., Thomas, E. A., Qualls, C. D., & Hammer, C. S. (2002). Predicting job satisfaction among speech-language pathologists working in public schools. Language, Speech, and Hearing Services in Schools, 33, 282-290. Bratton, J. & Gold, J. (2007). Human Resource Management, Theory and Practice. Basingstoke, Palgrave. Cascio, Wayne F. (2005). Managing Human Resources: Productivity, Quality of Work Life, Profit. 7th Edition. The McGraw−Hill Co. Cropanzano, R & Wright, TA. (2001). When a happy worker is productive worker: Review. Consulting Psychology Journal: Practice and Research, 53, 182-99. Fisher, C. (2005). Performing Management and Performance Management in J. Leopold et al (eds.) The Strategic Managing of Human Resources, Harlow, FT/Prentice Hall. Foot, M. & Hook, C. (2008). Introducing Human Resource Management. 5th Edition, Harlow, FT/Prentice Hall. Freeman, C., Nelson, R., Silverberg, G., Soete, L. and Dosi, G.(1988). Technical Change and Economic Theory. Continuum International Publishing. London. pp 38-66. Larke, A. Y., George, M. J., & Pokrywczynski, G. (1998). Job Satisfaction in the Advertising Industry. Research abstract Available from: [Accessed 30 July, 2010]. McGregor, Douglas.(1960). The Human Side of Enterprise. McGraw-Hill. Sweeney, A. P., Hohenshil, T. H., & Fortune, J. C. (2002). Job satisfaction among employee assistance professionals: A national study. Journal of Employment Counseling, 39, 50-60. Taylor, S. (2008). People Resourcing. 4th Edition, London, CIPD. Quick, JC et al. (1977). Preventive stress management in organization. Washington DC. American Psychology Association. Wendy Bloisi. (2006). An Introduction to Human Resource Management. McGraw-Hill Education. Read More
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